Wallace (Wally) Forbes, CFA, was President of the Forbes Investors Advisory Institute (FIAI) from 1993 through 2014, the division of Forbes Media that publishes the Forbes Special Situation Survey, Forbes Investor and is responsible for the Forbes participation in the Forbes/CFA Institute Investment Course published by Wiley. He hosts an interview program with leading money managers that appears on the Investing section. Mr. Forbes, the youngest son of B. C. Forbes, founder of Forbes Magazine, served as Vice President and Director of Forbes, and President of Forbes Investors Advisory Institute, from 1964 to 1969. After leaving the company, he served as president and CEO of Standard Research Consultants, formerly a subsidiary of Standard and Poor’s Corporation. He subsequently was a founder and partner-in-charge of Benchmark Valuation Consultants, which merged with KPMG Peat Marwick in 1987. Both firms specialized in the business valuation field. He has also served as a director of both public and private companies and of educational and other non-profit organizations. He rejoined Forbes in 1996, once again as President of FIAI. He has authored or co-authored articles on the valuation of business enterprises and related subjects that have appeared in various business and professional publications, including Harvard Business Review, Business Horizons, Monthly Digest of Tax Articles, Management World, Family Advocate, YPO Enterprise, Chief Executive, and The Business Valuation Handbook. After graduating in 1949 from Princeton University with a degree in civil engineering, he served for five years in the U.S. Navy Civil Engineer Corps and was assigned to Seabee battalions (Navy construction battalions) in various overseas locations. After leaving the Navy, Mr. Forbes attended the Harvard Business School, and, upon graduation, was appointed a research associate in investment management and a member of the faculty. Mr. Forbes is a member of the New York Society of Security Analysts and holds the Chartered Financial Analyst designation.

Fiscal Cliff Creates Investing Unknowns, But These 5 Stocks Still Stand Out

Michael J. Cuggino, President and Portfolio Manager, Permanent Portfolio Family of Funds, Inc.

Michael J. Cuggino: We had a significant event recently in the presidential and congressional elections. And as the dust settles from the results of those decisions, investors are beginning to cast an eye toward some of the risks that remain in the marketplace. I’ve been saying for a while that we’re still going to have the problems after the election — with respect to economic growth, employment, what’s going on in Europe, etc. — just like we did before the election.

The election results themselves don’t improve any of those issues. So in the short term, all of those headwinds still exist. Structurally, there are a lot of decisions and policy directions that are going to need to be made as they relate to taxation, regulatory policy, spending issues — similar to issues that Europe is currently dealing with. Investors are going to be recalibrating their views on all of this. And it’s going to impact a lot of investments, a lot of asset classes as well as a lot of sectors within those asset classes.

Wally Forbes: That makes sense.

Cuggino: I think with respect to equities this environment has very broad implications. I’m having trouble quantifying given where we are today of what direction we’re heading. So that’s the macro view. The laws of economics haven’t changed just because we had an election.

Equity prices will continue to be valued primarily on corporate earnings, liquidity, future business prospects and total return verses other investment options out there. And, in turn, those factors are going to be significantly influenced by the items that I just mentioned with respect to structural policy, tax policy, regulation, et cetera, et cetera. So, okay, where do we go from here?

Forbes: Lots of uncertainties ahead of us.

Cuggino: Our Permanent Portfolio (NASDAQ: PRPFX) is uniquely positioned as a core holding for this sort of environment where you have a lot of uncertainty. You have a lot of potential decisions out there to be made but still a lot of uncertainty as to which way a lot of these decisions are going to go and how they’re going to impact investments. Thus, you need to have investments that consider the effects of many alternatives.

So I think that’s what makes our fund relevant right now. I would say that I believe we’re relevant in all circumstances at some level — but I’m obviously biased. I think our all-weather strategy is a great core strategy in anybody’s portfolio at some level at all times. And I don’t think that’s any different right now.

Forbes: It is what you call an all-weather strategy?

Cuggino: Well, you could call it a number of things, a fund for all seasons, an all weather fund, all that sort of stuff. But I think that’s why we’re relevant. And as such we continue to maintain a fully diversified posture.

Forbes: Where are you putting investments at this point?

Cuggino: Well, given our asset allocation, we’re investing in equities. We still believe that longer term, equities are a good place to be — given corporate earnings, given overall valuations, given the overall market valuation, S&P earnings. If you look at the U.S. market it’s not overpriced,it’s reasonably priced. It may even get to be bargain-priced if prices decline further.And there’s a lot of liquidity on the sidelines from investors who have not participated in the equity rally of the last year or so. Also,dividend yields are supported by earnings and are very favorable verses the yield on bond investments.

Now, how is that impacted by the fiscal cliff? For example, neither dividends nor capital gains are going to be as tax-advantaged as they are right now starting January 1st due to the 3.8% surcharge on each from ObamaCare. This is irrespective of the expiration of the so-called Bush tax cuts. So how much does that impact stock prices, if at all? Do companies find other ways to produce tax-efficient returns such as through share buybacks, more M&A activity or special dividends before December 31, and does this offset the impact of higher taxes later or front-load future dividends into the current period? We just don’t know yet.

So you’ve got some of these things that have an indeterminate effect right now that you don’t know. But from a pure investment standpoint, realizing that these are significant negatives towards equities, we still think that equities in the long term are a reasonable place to be given overall reasonable valuations, dividend yields versus bonds, and the amount of liquidity that’s still available in the marketplace.

Forbes: Are there any equities that you feel are particularly attractive? Or where is it you’re weighting equities?

Cuggino: Well, we’ve generally gravitated more towards traditional growth stocks. But our strategy calls for a healthy weighting in real-estate-related stocks, in natural resource stocks and then an allocation towards general growth stocks, which would be further diversified among a number of different industries.

Forbes: Are there any particular stocks you might mention?

Cuggino: I would say Wynn Resorts, Limited (NASDAQ: WYNN), Apache Corporation (NYSE: APA), State Street Corporation (NYSE: STT) and FedEx Corporation (NYSE: FDX). I’ve mentioned a few of them before and,well, put it this way, I still like all of them. We own them. So we like them.

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